Dave Says Column

First, lay a solid foundation

Dear Dave,When is it okay to have a little fun, and buy things you want, when you’re following the Baby Steps plan?Kaitlin

Dear Kaitlin,The time for a little fun is after you’ve completed the first three Baby Steps. Baby Step 1 is saving $1,000 for a beginner emergency fund. Baby Step 2 is paying off all debt, except for your home. And Baby Step 3 means you go back and add to your emergency fund until you have three to six months of expenses set aside.

Once you’re debt-free except for your home — and you have your emergency fund completed — you’ve laid a solid, financial foundation for your life. That’s when you can have a little fun and spend some money on a vacation, new furniture, or something like that.

Children think about their immediate wants and do what feels good. Adults, on the other hand, devise smart, logical plans, and stick to them. I want you to have a great life, but you have to put in some hard work and say “no” to yourself sometimes in order to attain that great life!—Dave

It's Baby Step 1 for a reason

Dear Dave,I’ll be receiving my income tax refund soon. It will be enough to completely pay off my two smallest debts, or get my starter emergency fund of $1,000 for Baby Step 1 in place. What should I do?Brandy

Dear Brandy,I love that you’re excited about using your refund to start the Baby Steps, and begin gaining control of your finances. But we call the beginner’s emergency fund Baby Step 1 for a reason.

Bad things can happen while you’re working to get out of debt. That’s why I want people to get a little money set aside before they start Baby Step 2, which is the debt snowball. What if the alternator on your car goes out, or your refrigerator dies? Life happens, and things go wrong. When this kind of stuff pops up, and you don’t have any money set aside, you’re likely to quit the plan and wind up going even deeper into debt.

I know you want to get out of debt. I want you to get out of debt, too. But I want you to stick with the plan, and actually get out of debt, instead of falling off the wagon the first time you hit a bump in the road!—Dave